Capital Intensive and Labor Intensive
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Foundations of Financial Management
Block and Hirt -- Eleventh Edition
Problem 5-7 Objective
Create break-even charts
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Draw two break-even graphs-one for a conservative firm using labor-intensive production and another for a
capital-intensive firm. Assuming these companies compete within the same industry and have identical sales,
explain the impact of changes in sales volume on both firms' profits.
Although no example is provided in the textbook problem, we suggest you use these assumptions to
create an Excel line chart (break-even chart).
Labor Capital
Intensive Intensive
Selling price $12.00 $12.00
Variable cost per unit $8.00 $5.00
Fixed costs $250,000 $300,000
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Solution Summary
The solution explains the breakeven even differences between labor intensive and capital intensive through the use a CVP graph.
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